Competition, Protectionism and Monopolies

After Grupo Lala decided to close the operations of its dairy production plant in Costa Rica, a debate began over whether Dos Pinos' dominance in the local market was due to protectionist policies or to the brand positioning, quality and price of its products.

Friday, December 4, 2020

Although at the beginning of 2019 Lala announced that it had invested $14 million in the purchase of high technology machinery and in the expansion of its dairy plant in San Ramón, province of Alajuela, on December 1, 2020 it informed that they decided to close operations.

The argument of the business group of Mexican origin was that the capital released by this closure will be reallocated to our businesses in Nicaragua and Guatemala, where there is more potential to achieve sustainable and profitable growth.

The case of Grupo Lala is similar to that of Borden, Nestlé and Unilever, who in the past also decided not to continue betting on the Costa Rican dairy market, which for decades has been dominated by the national company Dos Pinos.

You may be interested in "Dairy: What Does the Consumer Think?"

Adrian Mora, business consultant with experience in the ice cream sector, told Elfinancierocr.com that "... there are some barriers that make difficult the entrance of new participants to the market, among them, the good relationship and the support that Dos Pinos offers to the traders, the positioning of this national brand, and the years of experience and investment that the Costa Rican cooperative is accumulating."

Regarding the closing of operations of Lala, Mora added that "... 'when one sees that such a big Mexican company enters the country and invests an amount of $20 million in its product plant, the reading is that they were serious. However, in order to reach a certain maturity in the national market, an initial investment and constancy of at least five to ten years is required."

According to Jorge Pattoni, former general manager of Dos Pinos, "... to compete with this company is to face more than seven decades of investments that go from the quality of the product in the farms, to the marketing, distribution and innovation."

For the Chamber of Industry and Commerce Costa Rica - Mexico (Cicomex), the domain of Dos Pinos does not have characteristics of a natural monopoly, but rather is the product of protectionist policies.

Santiago Aguilar, executive director of Cicomex, explained to Nacion.com that "... there is a great concern about the decisions that companies, such as Grupo Lala, are taking to abandon their operations in national territory, to establish them in other countries of the region, in response to a search for better profitability and legal security."

Aguilar said that "... the companies that make up Cicomex express their constant concern about excessive regulation and protectionism, in the face of various processes in the area of customs, tariffs, phytosanitary and infrastructure construction, which hinders the production processes of companies established in the country, and the current context is unsustainable to continue bearing these production costs."

See article from Elfinancierocr.com "Failure of Grupo Lala in Costa Rica: a new chapter on the impenetrable milk market dominated by Dos Pinos" and from Nacion.com "Costa Rica-Mexico Chamber of Commerce attributes Lala's departure to 'government protectionism."

¿Busca soluciones de inteligencia comercial para su empresa?



More on this topic

$30 Million Investment in Dairy Plant

June 2017

The Mexican company Lala will be building a milk, ice cream and by-products factory in Guatemala, with capacity to process 5 thousand tons of products per month, and it will start operating in the first quarter of 2018.

The 12 thousand square meter production plant will be built in Escuintla and will have a production line of pasteurized milk, ultrapasteurized (UHT) milk and ice cream.

Costa Rica: Challenges for the Dairy Sector

April 2017

There still remains tasks to be completed in the process of preparing to compete with milk and dairy products, which in 2025 will start to enter the country duty-free under the CAFTA.

In regards to how to prepare for the next market opening, José Antonio Madriz, President of the National Chamber of Milk Producers, told Nacion.com that there still remains work to be done, and that they "... have approached the Ministry of Agriculture and Livestock (MAG) several times, as lead agency, to establish joint plans between the private sector, government, universities and other research centers, but the result is insufficient."

Grupo Lala Buys Dairy Plant in Costa Rica

July 2016

The Mexican company has acquired a dairy production plant in Alajuela and through an agreement with Florida Bebidas will produce and market its products in the country.

The announcement comes days after Nicaraguan authorities blocked entry of Costa Rican dairy products, after Costa Rica denied a permit to the firm Lala to export products from Nicaragua.

Costa Ricans Buy Dairy Plant in Nicaragua

June 2016

The transaction, which was carried out in 2015, was not announced at the time in Costa Rica, where high production costs have prompted several companies to move their operations to Nicaragua.

In 2015 the Costa Rican dairy producer Dos Pinos bought the industrial plant La Completa for an undisclosed amount. Dos Pinos is a cooperative network made up of more than 2,000 associated producers and workers.

ok